Casino operator Crown Resorts (ASX: CWN) has rejected a revised indicative $9 billion acquisition offer from The Blackstone Group.
In a 17 May announcement, Crown said its board had unanimously concluded that the $12.35-a-share offer undervalued its business and was not in the best interests of shareholders.
In a separate 17 May announcement, Crown said it was still considering a merger proposal put forward by rival The Star Entertainment Group (ASX: SGR).
Crown also has a $3 billion refinancing offer from Oaktree Capital Management to consider. Oaktree’s 19 April offer would enable the company to buy back some, or all, of the 37% stake in the business held by James Packer’s family company Consolidated Press Holdings (CPH).
Crown said its board had decided to reject the Blackstone offer after taking financial and legal advice and considering feedback from shareholders.
The board had also considered a range of scenarios which might result from regulatory inquiries currently underway.
Crown said its decision had considered the strategic value of its land, hotels and gaming facilities, including the $2 billion spent so far, of a projected $2.2 billion, on the new Crown Sydney on the waterfront at Barangaroo.
A gaming licence has not yet been issued by the NSW Independent Liquor and Gaming Authority for Crown Sydney. The venue began operating in a restricted capacity at the end of December but, according to Crown, the Sydney operation is “still to provide a meaningful contribution” to earnings.
Crown said Blackstone’s offer had included a low takeover premium. The initial $11.85-per-share offer represented a premium of only 19% to the volume-weighted average price of Crown shares between the release of its financial results for the half-year to the end of December and the announcement of the offer. The revised offer was about 4% higher but the ASX200 Index had increased by about 6% since the initial offer.
Crown said its board had also considered Blackstone’s regulatory approval conditions. While these had been modified in the revised offer, they still presented an unacceptable level of regulatory uncertainty.
Crown said it was continuing to implement its reform agenda and welcomed recent comments by the NSW ILGA that it was making significant progress towards suitability to commence gaming operations at Crown Sydney.
Crown was also continuing to fully co-operate in relation to other regulatory processes involving it including the Victorian royal commission into Crown Melbourne and a royal commission in Western Australia, the company said.
On 13 May, the NSW ILGA announced Crown had agreed:
- to pay a proportion of the costs of the Bergin inquiry [into its suitability to be granted a NSW gaming licence];
- not operate any international junket operations;
- make all gaming in its casinos cashless.
ILGA chair Philip Crawford said Crown was making significant progress in addressing serious concerns raised in the Bergin report.
“Crown, through its executive chair Helen Coonan, is addressing many of the issues which caused Commissioner [Patricia] Bergin to find it was unsuitable to hold a casino licence in NSW,” Crawford said.
He said the ILGA had also entered into an agreement with James Packer’s family company Consolidated Press Holdings (CPH) to “address issues around its influence and control over the management of Crown”.
Crawford said an independent monitor would be appointed to report back to the ILGA on several of Crown’s structural changes, with particular focus on its corporate governance, anti-money laundering measures and culture.
“The Authority will await the report from the independent monitor, and the result of the financial accounts audit, before making a final decision on suitability,” he said.
“Any changes to Crown’s ownership structure, including takeover or merger proposals, require the Authority to consider a range of issues including undertaking full probity assessments of any new entrants, how a merged entity would operate, and the extent to which any existing agreements with Crown would need to be reviewed.
Any concerns around monopolies would be a matter for the Australian Competition and Consumer Commission,”
The Star Entertainment Group’s offer proposes a merger at a nil-premium share exchange ratio of 2.68 Star shares for each Crown share. This reflects the ratio implied by the three-month volume-weighted average share exchange ratio to 19 March, the day prior to the announcement of Blackstone’s initial proposal.
Star said it plans to provide a cash alternative offer of $12.50-per-Crown-share to acquire up to 25% of Crown’s total shares.
Assuming the cash alternative was taken up in full, the merger proposal would result in the merged entity being owned 59% by Crown shareholders and 41% by Star shareholders.
Star has stated to Crown that it estimates its merger proposal would result in “cost synergies” of $150-$200 million per year.
It has also suggested that the proposal would offer potential to unlock significant value from sale and leaseback of the merged entity’s property portfolio.
Star’s merger proposal is subject to various conditions including approval by shareholders of both companies, approval from state-based casino regulators, clearance from the Australian Competition and Consumer Commission (ACCC), agreement being reached with CPH and relevant gaming authorities on CPH’s ownership involvement and due diligence by both Crown and Star.
Crown announced on 10 May the appointment of Lendlease (ASX: LLC) chief executive Steve McCann as its new chief executive.
McCann is to join Crown on 1 June. Real estate and investment group Lendlease announced in February that McCann would leave on 31 May after 12 years as its chief executive.
Former Liberal federal minister Helen Coonan has been serving as interim executive chair since previous chief executive Ken Barton resigned in February following the Bergin inquiry finding that the company was unfit to operate a casino licence in NSW. Barton was heavily criticised in the inquiry’s report which found Crown had facilitated money laundering and been infiltrated by organised crime in its Melbourne and Perth casinos. Coonan will continue as executive chairman until McCann takes up his appointment.
Coonan said McCann was “a first-class appointment for Crown and the right person to embed the ongoing reforms necessary to restore regulatory and public confidence in our operations”.
Image: Crown Sydney’s waterfront Barangaroo tower.